Finding the Money
If you’re working as an investor in property and are working with a mortgage owner to buy their mortgage from them, you’ll have said owner sign a ‘Note Purchase Agreement’ to lock them into selling you the mortgage to a property for a specific amount of money. Using Someone Else’s Money to Invest in Real Estate
In this note purchase agreement, be certain that you state a certain period of time for due diligence. This is to give you time to get your trait report and head to the court house to inquire about any other liens on the property. Make sure that your due diligence period is between 45-60 days to give you plenty of time.
While you are carrying out due diligence, you will also be looking for another real estate investor to give you cash to buy that mortgage note. You can find them in plenty of places, some investors go to a local real estate investing club. Here you get a chance to present potential mortgage note purchase deals and get investors.
Alright. So let’s say you attend your local club and meet a real estate investor who is looking for a 14% percent return on their investment.
Quick Tip: The investment and the return are inversely proportional. The less money you invest, the more money you make on your return.
Working It Out
For instance, if you are buying someone’s $100,000 mortgage note for $76,000, that means you’ve just earned $24,000 profit in the long run. That’s about a 24% return on your investment. All you need to do to continue making money without spending your own is find another real estate investor who is looking to invest their money and get a bit of a lower rate of return.
At the real estate club, you meet this investor. They only want a 14% return on their money investment for the mortgage on the property.
Therefore, you buy the mortgage note from the owner at $76,000, then turn around and sell it to the investor for $86,640. That leaves about $13,360 in profits for you to pocket from your part in the deal. The investor is going to make a profit too, because their mortgage note is worth $100,000 even though they only paid out around $87,000.
When you look for your own investor for your mortgage note purchase you can still make money on the differences in percentage. Your must be diligent and pay careful attention to the percent of return for yourself, the mortgage owner and your investor, but you can make money by setting up the sale!